Oil companies are cutting budgets and laying off workers because of falling prices. This well site is in Texas' Permian Basin. (Brittany Sowacke/Bloomberg)

Oil companies are cutting budgets and laying off workers because of falling prices. This well site is in Texas' Permian Basin. (Brittany Sowacke/Bloomberg)

Photo: Brittany Sowacke

U.S. oil slips back below $50 as inventories grow

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Benchmark U.S. crude retreated below $50 a barrel Wednesday, as government reports showed U.S. supplies at record levels and predicted continued growth in production.

The price plunge has been a boon at the gasoline pump but is taking a growing toll on industry workers in Houston and elsewhere, with each day bringing new layoff reports that raise a job cut total already in the tens of thousands. Houston-based equipment maker FMC Technologies added to the layoff tally Wednesday, saying it will cut 2,000 jobs, mostly in North America.

In a bearish development, the U.S. Energy Information Administration projected in its monthly Short-Term Energy Outlook that U.S. crude production will continue to rise this year and next - blunting other recent predictions that drilling cutbacks will slow production soon and stabilize prices.

The Energy Department agency said in a separate weekly report that U.S. commercial crude oil inventories rose by 4.9 million barrels last week to 417.9 million barrels, the highest for this time of year in records dating back 80 years. Inventories are up 16 percent from last February.

The count excludes oil in the U.S. Strategic Petroleum Reserve, which holds almost 700 million barrels in underground caverns along the Gulf Coast.

In its Short-Term Energy Outlook, the information agency projected that in 2016, the U.S. could approach record oil production.

The study found that U.S. producers pumped an average 9.2 million barrels of oil per day in January. The agency expects average daily production of 9.3 million for all of 2015, and 9.5 million barrels in 2016. The nation's record production was 9.6 million barrels a day in 1970.

Those numbers contrast with recent projections by the research firm IHS Energy that U.S. production will stop growing sometime this year, and with a report Tuesday by the Paris-based International Energy Agency that the shrinking number of active U.S. drilling rigs could stall the expansion of crude supplies in North America.

Price predictions

But other forecasters agreed with the Energy Information Administration that it will take time for U.S. producers' spending cuts to result in fewer barrels of oil coming from the ground.

The timing of any U.S. production decrease is critical. In the face of slower oil demand growth, many analysts say oil prices won't start to rise significantly until U.S. producers slow their production.

The Energy Information Administration forecasts international benchmark Brent crude will average $58 per barrel in 2015 and $75 per barrel in 2016, and that U.S. benchmark West Texas Intermediate will average $55 in 2015 and $71 in 2016.

Both grades were lower than that Wednesday. West Texas Intermediate fell $1.18 to $48.84 a barrel on the New York Mercantile Exchange. Brent dropped $1.77 to $54.66 in European trading.

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The U.S. benchmark has ranged this year from $44.45 on Jan. 8 to $53.05 on Feb. 3.

Crude prices have fallen by more than half since reaching 2014 highs above $100 last summer, and many companies have announced layoffs in reporting their fourth-quarter earnings.

10 percent of workforce

Houston-based FMC Technologies, which manufactures subsea oil field equipment and supplies hydraulic fracturing technology and other wellhead services, said it is cutting 10 percent of its global workforce of 20,000, mostly in North America.

"We're responding quickly and significantly to the slowdown in our North American business by reducing discretionary and capital spending," CEO John Gremp said during a conference call to discuss earnings.

FMC spokesman Patrick Kimball said the initial job cuts will affect the company's surface and fluid control businesses, which mostly are outside Houston.

Gremp said FMC expects its subsea orders in 2015 to decline from last year's $5.8 billion, as most oil companies are cutting back on capital spending.

But he said the company will build on cost reductions that began last year to make manufacturing of subsea equipment more efficient.

He said FMC also is experiencing a significant slowing in the North America land market and expects the downturn to continue in coming months.

FMC reported Tuesday that its profit fell 5 percent in the fourth quarter as it took a $24.9 million charge related to its U.S. benefit pension plans and saw a $25.5 million foreign currency loss.

It banked a profit of $168.6 mil-lion in the October-December period, compared with $177.8 million in the same period the year before. Revenue rose from $2.05 billion to $2.16 billion.